Hong Kong’s Partial Re-Auction of 3G Spectrum Angers Incumbents

Nov. 16 (Bloomberg) -- Hong Kong’s plan to auction parts of
the third-generation mobile-phone spectrum when current licenses
expire has angered existing operators, who say it will lead to
higher prices and worse service.

The government will auction a third of the spectrum,
Communications Authority Chairman Ambrose Ho said at a briefing
yesterday. The auction may clear the way for China Mobile Ltd.
to compete with HKT Ltd., CSL Ltd., Hutchison
Telecommunications Hong Kong Holdings Ltd. and SmarTone
Telecommunications Holdings Ltd., whose licenses expire in 2016.
The auction is expected to take place in the fourth quarter of
2014, the government said in a statement.

Existing operators will get priority to retain the rights
to the rest of the airwaves, Ho said.

Mobile data usage per subscriber surged 4.3 times in the
two years through June in Hong Kong as smartphones drove demand.
The government decision will allow China Mobile, the world’s
biggest phone company by users, to expand services in the city
and force existing providers to revamp operations.

“This could increase costs for the carriers by hundreds of
millions of Hong Kong dollars,” Victor Yip, an analyst at UOB-Kay Hian Ltd., said by phone before the announcement.
“Operators facing such a dramatic increase in costs will try to
pass on the cost directly or indirectly to customers.”

Telecommunication services generated HK$57.3 billion ($7.4
billion) of revenue in Hong Kong in 2010, according to the
latest figures on the website of the Office of the
Communications Authority.

A partial re-allocation of the spectrum struck the best
balance between ensuring efficient use of airwaves and the need
for customer service continuity, the Communications Authority
said. Any degradation in service quality could be “effectively
mitigated” the authority said in an e-mailed statement.

China Mobile

“The government is doing the public a disservice by opting
for a solution that degrades service quality to all mobile users
and, due to the high spectrum fees, essentially creates a new
and regressive tax on consumers,” Alex Arena, group managing
director of HKT, said in an e-mailed response. The right option
would have been for incumbents to be given right of first
refusal for their existing spectrum, he said.

CSL is “concerned” that the decision may disrupt services
and increase operational costs, Chief Executive Officer Phil
Mottram said in a press release. SmarTone said in a press
release that it is “disappointed” and that the decision is
against the public interest.

“The unreasonable arrangements that have been adopted
suggest that they have simply gone their own way and ignored
public views, as well as the voice of the telecoms industry,”
Hutchison Telecom said in an e-mailed statement. The government
had presented “no credible evidence” of any benefits from its
decision, the carrier said.

‘Precious Resource’

China Mobile has said the government should hold an auction
for the spectrum so the market can set a fair price for a
“precious public resource.”

The city of 7.2 million people had 16.7 million mobile
service subscribers as of June, a penetration rate more than
double the global average, according to data from the
International Telecommunication Union.

A revamp of the spectrum would cause service degradation
and increase costs, according to a Sept. 5 statement by the four
current operators.

“Auctions will actually create investment uncertainty for
incumbents rather than promoting investment,” the American
Chamber of Commerce said in a submission to the government dated
March 27. “Further impacts to reduced investment will delay the
development of new services.”

Re-auctioning parts of the spectrum “will stimulate
further competition in the mobile market,” the government said
in a December 2012 consultation document. It is “more superior
in enhancing spectral efficiency, encouraging investment and the
introduction of innovative services.”